What is globalization Increased interactions across international borders Increased interdependence Reorientation from local identities to more transitional ones There is a belief that these are increasing in recent decades Economic Globalization 15th mid 19th centuries Lots of global economic interactions during colonial era through technically not international 1846 Britain s repeal of the Corn Laws widely viewed as beginning of globalization trade liberalization mid 1850s 1914 First Golden Age of Globalization 1919 1939 WWI created backlash against all international interactions exacerbated by Great Depression 1944 Meeting at Bretton Woods created new global economic system fixed exchange rates free trade IMF World Bank 1945 present steady increase in all international economic interactions accelerating in late 1970s How does current globalization compare to the Golden Age of 100 years ago o Trade o Finance aid remittances o Migration Large but not revolutionary increase Foreign direct investment portfolio investment foreign Similar levels maybe slightly less today Causes of Economic Globalization Belief that trade and foreign investment are beneficial for everyone involved Technology o Shipping becoming cheaper faster o Tech products becoming smaller lighter o Communication across distance becoming much easier Political and Cultural Globalization Economic globalization requires significant cooperation between states has led to creation of many IGOs Individuals exposed to goods services ideas from other regions Tendency for Western culture to dominate traditional cultures struggle to survive The Challenge of Free Trade Government want to have it both ways free trade for the goods where they have a comparative advantage trade protection for the goods where they don t o Some say this is a prisoner s dilemma Lots of technical issues what kinds of quality controls are allowable under free trade General Agreement on Tariffs and Trade GATT Treaty negotiated at Bretton Woods 1944 Agreement to reduce tariffs tax on imports as much as possible Non discrimination can t play favorites must offer all GATT members the lowest tariff on a good you offer to anyone Must give all GATT members most favored nation status Reciprocity expectation that if one sides offers a lower tariff on a good the other side will do the same Also allows for retaliation if one side violates agreement Regular negotiation rounds to ensure steady progress deal with new issues The World Trade Organization WTO GATT largely successful at reducing explicit tariffs but not non tariff barriers technical barriers to trade WTO created in 1995 to provide forum for litigation a member state can sue another if they believe GATT has been violated Arguably the most powerful IGO in the world today The International Monetary Fund Founded at Bretton Woods in 1944 Original mandate regulate fixed exchange rate system Now provides bailouts and loans to governments to prevent debt default Has pool of 750 billion to loan out IMF Bailouts Loans to countries struggling to pay external debts Often charged little or no interest But there are conditions structural adjustment programs o Policy changes intended to prevent future problems avoid moral hazard o Cut government spending o Reduce trade restrictions focus growth on export sectors o Devalue currency o Anti corruption measures Criticisms of the IMF Best economic policy a matter of opinion IMF imposes Washington Consensus on borrowers o Minimal government debt o Low taxes o Limited regulations o Free trade Overemphasis on long term outcomes Donation based voting means creditors have all the power borrowers have none Allies economic partners of big donors get preferential treatment